Dollar pares losses as stocks close down

LisaTwaronite

PolyaLesova

WilliamL. Watts

SAN FRANCISCO (MarketWatch) -- The dollar fell against most other major currencies Thursday, but pared losses as U.S. stocks tumbled, driving investors into safe-haven assets.

The dollar index
DXY, +0.57%
which measures the currency against a trade-weighted basket of six global counterparts, fell to 87.802 from 87.880 in late North American trading Wednesday, but was above a low of 87.313.

The euro gained 0.1% to $1.2735, but was down from a session high of $1.2808, while the British pound rose 0.7% to $1.4305, down from a session high of $1.4384.

On Wall Street, U.S. stock indexes erased earlier gains, with the Dow Jones Industrial Average
DJIA, +0.20%
ending down. Health-care stocks paced the decline, after the White House called for cutting payments to private insurance plans. See Market Snapshot.

Analysts also digested a slew of gloomy U.S. economic data.

"U.S. data are trying their best to dampen remaining risk appetite," wrote Matthew Strauss, senior currency strategist at RBC Capital Markets, in a note to clients Thursday.

First-time applications for state unemployment benefits rose 36,000 last week to stand at a seasonally adjusted 667,000 -- the highest since October 1982 and up 86% from last year. See Economic Report on jobless claims

And, sales of new homes fell 10.2% in January to a record-low seasonally adjusted annual rate of 309,000. See Economic Report.

Yen falls

The dollar rose 1% to 98.34 Japanese yen. The greenback moved as high as 98.69 yen in earlier trading, its highest level since November, amid growing concerns over the deterioration in the Japanese economy.

"There's been a clear shift in the way the yen is being traded," said Meg Browne, currency strategist at Brown Brothers Harriman & Co.

"For a long time it seemed to trade as a safe-haven currency in line with equities," Browne said. "That broke down in mid-February."

Around that time, data showed that the Japanese economy contracted 12.7% on an annualized basis in its fiscal third quarter, its sharpest pace since 1974.

Increasingly weak economic data and a sharply rising trade deficit underscore risks for the yen, said Neil Mellor, currency strategist at Bank of New York Mellon. Read more on Japan.

Also, with Japan's Cabinet Office forecasting an output gap of 4.3% for gross domestic product -- what would be the highest in seven years -- "it is clear that a fresh era of deflation looms," Mellor said in a research note.

"Fears abound, therefore, that the Bank of Japan -- badgered by the Ministry of Finance -- may itself feel obliged to resort to the printing press," he said.

Mellor said technical patterns point to a near-term test of the 102-yen level in dollar action, with resistance seen at 98.93 yen, which marks the 50% retracement from the August high to the December low.

Euro, pound gain, unmoved by data doldrums

The euro rose against both the dollar and the Japanese yen despite gloomy economic data.

Data released by Germany's statistical agency said unemployment rose by 40,000 in February, taking the unemployment rate to a nine-month high of 7.9% in the largest European economy.

While German unemployment hasn't risen as sharply as in other euro-zone countries, surveys of hiring intentions show much worse is yet to come, said Ben May, an economist at Capital Economics.

Meanwhile, data from the European Central Bank showed that annual private-sector lending growth slowed to a 5% rate in January from 5.8% in December, marking the slowest pace of expansion in more than five years and underscoring that "the credit crunch is tightening its grip on the wider economy," May said.

Also Thursday, a gauge of economic sentiment across the euro zone fell to a new record low in February, the European Commission reported. The sentiment indicator declined from 67.2 in January to 65.4 this month, the lowest reading since the indicator was launched in January 1985.

The British pound rose after Royal Bank of Scotland (RBS) said the U.K. government has agreed to insure 325 billion pounds ($462 billion) of its assets as the bank unveiled a 24.1 billion pound net loss for 2008 -- the biggest ever by a British company.

The red ink was less, however, than the 28 billion pounds it had warned it could lose in January.

Meanwhile, British house prices continued to slide in February, down an average 1.8% on the month, according to mortgage lender Nationwide. See full story.

Intraday Data provided by SIX Financial Information and subject to terms of use.
Historical and current end-of-day data provided by SIX Financial Information. Intraday data
delayed per exchange requirements. S&P/Dow Jones Indices (SM) from Dow Jones & Company, Inc.
All quotes are in local exchange time. Real time last sale data provided by NASDAQ. More
information on NASDAQ traded symbols and their current financial status. Intraday
data delayed 15 minutes for Nasdaq, and 20 minutes for other exchanges. S&P/Dow Jones Indices (SM)
from Dow Jones & Company, Inc. SEHK intraday data is provided by SIX Financial Information and is
at least 60-minutes delayed. All quotes are in local exchange time.